Question

In this chapter, the virtues of perfect competition have been highlighted. Among the benefits of perfect competition, no buyer or seller taken alone can affect market prices. Also, efficiency is obtained since firms will produce at full capacity. While some economists praise perfect competition in the sense that it allows to achieve tremendous efficiency. Some economists argue that perfect competition is unnecessary and irrelevant since it may hinder innovation and invention. Provide your arguments for or against perfect competition.

Answer 1

Though there are many benefits of perfect competition such that the information is clear among the producers and consumers so that price is same across all the centres this would be efficient a certain extent but what happens if there would be no motivation for the producers to charge more and get profits and re invest in the innovation and what happens with this is that the price would always remain same and with innovation there is a chance that the productivity can go up and in the further production cycle is the cost can go down and this can only happen when there is enough money or motivation for the producer to invest in research and development and this can happen only in the absence of perfect competition and the economic growth that we have seen over the past decades or centuries is due to to this market power and that is the reason why perfect competition can hinder economic growth